US Bancorp
Company Overview
U.S. Bancorp is the fifth-largest commercial bank in the United States, headquartered in Minneapolis and known for its consistently superior profitability among major U.S. banks. Berkshire held U.S. Bancorp shares for many years, attracted by its best-in-class return on equity and its management's disciplined avoidance of the exotic financial products that damaged larger competitors.
Investment Story
Investment accumulation. Berkshire accumulated U.S. Bancorp shares over multiple years, building a position that represented roughly 3-4% of the bank at its peak. The investment reflected Buffett's view that U.S. Bancorp's management — under CEO Richard Davis and predecessors — operated the most efficiently managed major U.S. bank.
The banking quality case. U.S. Bancorp consistently generated return on equity of 15-18% — substantially above the 10-12% typical for large U.S. banks — through a combination of efficient operations, disciplined credit underwriting, and focus on profitable retail and middle-market commercial banking. The bank avoided the structured finance, subprime mortgage, and exotic derivative activities that generated enormous losses for larger competitors during 2008.
2022: Reduction. Berkshire substantially reduced its U.S. Bancorp position in 2022, selling most of the shares. The reduction may reflect portfolio rebalancing rather than any specific concern about U.S. Bancorp's business.
Buffett's Own Words
The Washington Post Company ......... 9,731 342,097 5,000,000 Wells Fargo & Company ............... 289,431 289,375 Lethargy bordering on sloth remains the cornerstone of our investment style: This year we neither bought nor sold a share of five of our six major holdings. The exception was Wells Fargo, a superbly-managed, high-return banking operation in which we increased our ownership to just under 10%, the most we can own without the approval of the Federal Reserve Board. About one-si
U.S. Bancorp ........................................... 4.4 2,417 2,386 17,072,192 USG Corp................................................ 17.2 19,944,300 Wal-Mart Stores, Inc. .............................. 0.5 1,727,765 The Washington Post Company .............. 18.2 1,367 303,407,068 Wells Fargo & Company......................... 9.2 6,677 9,160 1,724,200 White Mountains Insurance Group Ltd. .. 16.3 Others ...................................................... 5,238 7,633 Total Common Stocks .......
For example, See's, Wells Fargo and Freddie Mac could be hit hard. All in all, though, we can handle this aggregation of exposures. In this respect, as in others, we try to "reverse engineer" our future at Berkshire, bearing in mind Charlie's dictum: "All I want to know is where I'm going to die so I'll never go there." (Inverting really works: Try singing country western songs backwards and you will quickly regain your house, your car and your wife.) If we can't tolerate a possible consequen
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,595,180 Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,540 Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,683 5,135 Total Common Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,044 $ 37,265 * Represents tax-basis cost which, in aggregate, is $1.5 billion less than GAAP cost. During the yea
*The Washington Post Company . . . . . . . . . . . . 18.3% Wells Fargo & Company . . . . . . . . . . . . . . . . . 3.6% Berkshire's share of undistributed earnings of major investees Hypothetical tax on these undistributed investee earnings (99) (3) Reported operating earnings of Berkshire 1,318 Total look-through earnings of Berkshire $ 1,926 (1) Does not include shares allocable to minority interests (2) Calculated on average ownership for the year (3) The tax rate used is 14%, which is *
Investment Lessons
Banking quality is measured in through-cycle performance, not peak-cycle returns. U.S. Bancorp's 15-18% ROE included the 2008-09 crisis years when its larger competitors were writing off billions. A bank that earns 18% in good years and 8% in crises is far less valuable than one that earns 15% consistently through cycles. U.S. Bancorp's crisis-era performance validated the management quality thesis.
Management culture in banking determines competitive position. The decisions that produce U.S. Bancorp's superior returns — avoiding layered credit risk, maintaining disciplined fee structures, investing in customer relationships while keeping overhead lean — reflect cultural priorities that are invisible in any single year's financial statements but determine decade-long returns.